POWER: Nordic Hydro Stocks Decline for First Time in 13 Weeks

Bund futures have followed US Treasuries higher through the European morning, now +49 ticks at 130.64. Futures reached a session high of 130.73 earlier, leaving initial resistance at 130.80 (June 26 high) untested. Key resistance has been defined at 131.95, the Jun 13 high. Clearance of this level is required to reinstate a bullish theme.

• The German curve has bull flattened, with 30-year yields down 6bps to 3.04%.
• There have been several ECB speakers this morning, with the annual Sintra forum well underway. Most notably, Vice President de Guindos suggested a EURUSD exchange rate above 1.20 would be “complicated”, hinting at weaker imported price pressures and less competitive export markets.
• Indeed, while the Eurozone June manufacturing PMI essentially confirmed flash estimates (49.5 vs 49.4 flash and prior), both the Spanish and German readings referenced disinflationary forces from the exchange rate.
• Eurozone flash June headline and core inflation were in line with consensus at 2.0% Y/Y and 2.3% respectively. Services ticked up modestly to 3.3% YY (vs 3.2% prior). ECB 1-year ahead May consumer inflation expectations fell to 2.8% (vs 3.1% prior).
• 10-year EGB spreads to Bunds are within 1bp of yesterday’s closing levels. Ireland will hold one auction in Q3 (in September), but did not comment on whether we will see further auctions in Q4 or not.
• The remainder of today’s session includes appearances from ECB’s Schnabel and Lagarde. The ECB’s seasonally adjusted inflation metrics will also be released in due course.

BTP Basis trade, suggest Cash seller:

• IKU5 ~1.67k at 121.51.